How to be a Better Negotiator

I’ve never been good at negotiation – I mean negotiating a price – and neither has Christine. But I put the negotiating puzzle together this week. This story could save you thousands of dollars. These two simple tips I stumbled upon this week saved my family $50,000 to $100,000 dollars. And that was by accident. Imagine what they could save you if you intentionally applied them to your life.

If you’ve been reading this blog for a while you know that my wife – Christine – is an online bookseller and she dreams of opening a ‘brick and mortar’ store.

She has been researching retail real estate for 18 months and she found that retail space was too expensive for a book business. For the asking price, she couldn’t be profitable, so she suspended plans to build a retail store and focused on growing her online business.

A few weeks ago she received an unexpected email from a property owner stating that he was ready to cut an aggressive deal.

She sent him an email saying she was only willing to pay about 1/3 of asking.

A week later he accepted her offer. She negotiated a 2/3 discount. It took 18 months.

Now what did we learn about negotiating?

Don’t hurry. If you rush into a decision you will probably pay too much. Most of negotiating is – who wants it more. Whoever wants it more is going to have to give more to get it.

Negotiating isn’t about honesty – it’s about the marketplace. I was confused by this for years, and the truth hit me this week. Here is how I used to think about negotiating:

The seller should name the lowest price she is willing to take. Anything less is dishonest. I believed this about cars, houses, or anything negotiated. I thought the negotiating process was an underhanded scam. If I could ignorantly pay more than someone else, it was unfair and I took it personal.

Now turn that idea on its head…

If the seller thought the same way, he would believe that I should name the highest price I am willing to pay. Anything less would be unethical and dishonest. Why should he leave any money on the table?

I learned as a small child that asking for more than I needed was dishonest. But this thinking is a trap. Your guilty feelings put you into a position where you consistently pay too much and ask for too little.

But the truth is – it isn’t about need at all. You only negotiate for items you want, not items you need.

I’m sorry for this generalization – but women tend to fall into this trap easier than men. I think it’s because they are taught different values as children. Women are generally far more self-sacrificing than men. Suzi Orman just did a seminar on PBS about how women give too much and ask for too little.

This is how it works in a free society:

Let’s say a property owner needs $2,000 per month to break even. She could make a profit if she only asked for $4,000. In my old value system it would have been unethical to ask for more than $4,000.

But let’s say she asks for $10,000 per month. She has every right to ask for it, but no right to get it. And if someone willingly gives her $10,000 per month – that’s what the space is worth!

However, if no one pays her $10,000 per month she will lose $2,000 per month which gives her an incentive to lower the price.

So it’s important to wait and see if something doesn’t sell for the asking price.

This isn’t about honesty. It’s about freedom. You are free to ask whatever price you wish and I am free to choose to pay it or not. It is that simple. If the seller is charging a fair market price someone will buy it. If the seller isn’t, it won’t sell and he will have to drop the price or hold the item. Any other system would violate the free will of both the buyer and the seller.

So the next time you are complaining about the cost of anything, the best thing to do is stop buying it. I don’t mean basic food, water, and shelter. I mean everything else. Is college too expensive? Don’t buy it. Is gas too expensive? Sell your car and take the bus. Is a nicer house too expensive? Don’t buy it.

And you know what…if we stopped thinking we needed all these things, we wouldn’t need them. They are only expensive because we all believe we need them, which means the seller can raise the price at will. The only recourse you have is to stop buying it.

19 thoughts on “How to be a Better Negotiator”

Steve, isn’t it great how the fair market works? I’m free to set my price and you’re free to either pay it or not pay it, which then lets me know if I’ve set my price higher than the market will bear. Then I’m free to DROP my price if I see fit. It’s a beautiful thing!
~Monica

I have this issue a lot, as a freelance writer. When I first started doing it, I would cringe at asking the average going rate (as based on what fee schedules I could find online), because it seemed like so much money to a starving artist-type like myself. But people kept coming back with, “That’s about what we figured,” or “Sounds like that’s right about in our normal budget for these things.”

These days, I just price and go. If they accept, cool. If they don’t, I can always try to work with them to come out with an alternative that works for both of us, if I want the job bad enough. Or not. It’s my choice, and that’s the whole point of working for myself!

Great post! I like the stories because it really helped me grasp your new value concept. I just know in negotiations that you make your profit when you’ve bought not when you’ve sold, (like buying realestate) but the mechanics of your new value system really makes that click for me much more in a sense that you’re operating from a “patience” standpoint and gives me a bigger picture. “Shrewd” negotiations doesn’t always mean moving forward aggressively! “Patience” just may be your most aggressive move yet!

I’ve been buying real estate for several years, and I’ve never had my first offer accepted, nor have I ever had a property sell the instant I made it available. Doing either would leave way too much money on the table!

I’ve never liked the word ‘shrewd.’ I like ‘patient’ negotiator much better. There was nothing ‘shrewd’ about Christines rent negotiations. Everything was very friendly and easy. It just took patience.

Josh,

I bought a minivan shortly after my first child was born. I researched it on the internet and knew the lowest price I should pay and was determined not pay a penny more. I walked into the dealership, found the van I wanted, and planned to start a negotiation. They offered me exactly the price I had in my head. It was like they had done the exact same market research. I’ve always wondered if I should have walked away from that one or not. But I bought it for price I planned on paying. But like I said, since I didn’t test them I always wondered how much money was left on the table.

I’d do it completely different today. I’d do the whole thing via email and I’d play it out over a month or so. Maybe more.

Ahh, the art of negotiation. Some people get it, and some people never will. It definitely helps to start thinking about strategy though. You’re definitely right about not ‘wanting’ to buy. If you go in wanting to buy at a set price (like you did with the minivan) you limit your negotiating ability dramatically.

My wife and I have discussed separating our wants from our needs many times. If you know the difference you are one step ahead of the game. When
you have to finance the purchase remember that you are spending future
wages to satisfy todays wants. If your vehicle is worn out you know you need a new one. This is no longer a want, but a necessity. Don’t go to the dealership and pay sticker price as some do. Know a price that you feel you can afford. Many people are switched to a higher priced vehicle by the salesperson. Stick with your original price you have in mind. Remember the sales person wants the sale maybe even more than want to buy. Listen to his pitch then make your offer. You will probably end up paying something in between. However it will be less than their asking price. Always negotiate.

Hi Steve,
I’ve found your post very interesting, be aware to not forget a very important concept: customer satisfaction !
If you, as seller, ask and get more as the marketplace normally accepts, as soon as the buyer get aware of the real (lower) marketprice, his expectations rises and his satisfaction lowers instantly. Consequence could be that you’ll never make a second deal with that person and he might also spread bad feedback.
In this case it might also happen, for example if you rent an appartment for a higher price, that the customer might not take particular care of it.

I’m a strong fan of the RIGHT PRICE: gain only few % and make a lot of deals and get a good reputation, instead of make one big deal and than work long time to find another customer because of my bad reputation.

I’m getting ready to negotiate on a home price of $495,000. I want to offer $399,000. $410,000 would probably be the highest I could go. Can you give me some pointers on how to present the deal and get it accepted? Thanks Steve

Veronica,
You can never be sure what will work, every situation is unique, but I can tell you what won’t work. Don’t be too eager. Be willing to walk away. If they need you more than you need them you are in a great position to negotiate but it may take time. The biggest power you have is the power of ‘saying no.’ Try to keep emotional attachment out of it – I know it’s hard – think about the deal strictly in business and monetary terms and realize that lowballing a seller may piss them off and they may not talk to you again. I don’t know where you are or a thing about the seller or the deal, but offering 20% under asking is usually risky. But like I said in this article, my wife made a lowball offer and waited months and they finally called and accepted it. If you can only afford 399… tell them that. Tell them you can’t pay a dollar more. If they want your money they’ll take it. If they don’t, they won’t and you’ll have to keep looking. make your offer and be willing to walk away without hesitation. Don’t be mean or crude or emotional, just be honest. “I won’t pay more than 399” and see what happens, they might not talk to you again, they might ask for some time, and they might counter offer. You can’t control the results only your actions.

Put some value and benefits into doing business with you. Show them how the returns will be doing business with you. That way you can take as much payment as you want. Justify it with a strategy that highlights the benefit.
The more you take the more authoritarian you become. When boring people make them feel as if its their fault.
KNOWLEDGE – Priceless.
The Baldchemist

Great post! I recently attended a two day negotiating class and it was enlightening to say the least. One of the things that I learned about Americans is that we as a culture do not like to negotiate. In Russia and Eastern European countries they will start the negotiations at half the asking price. In life you only get what you negotiate for.